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Finding the right e-commerce pricing strategy is a combination of art and science. On the one hand, you must understand the nuances of products, markets, and customers. On the other, you must crunch the numbers.
In this article, we are going to focus on the 12 best e-commerce pricing strategies your business can use to boost sales. In particular, we will focus on the best methods to determine your price so that you can produce revenue while giving your customers a fair deal.
E-commerce pricing strategies focus on determining how much customers pay for a product or service. In its simplest form, an e-commerce pricing strategy stems from adding a profit margin to a product’s cost. For instance, product A costs $10. The company chooses to add a 10% profit margin, that is, $1. The product’s total price is $11.
However, e-commerce pricing strategies are seldom that simple. Various elements factor into calculating a product’s retail price. Here are some elements to consider:
These factors determine your products’ final prices. However, please bear in mind that your e-commerce pricing strategy largely depends on what the market will bear. As such, you may be able to charge far more than you anticipated.
An e-commerce pricing strategy lets you objectively determine your products’ pricing. You can establish how much your products cost while ensuring your business produces enough revenue.
So, let’s consider three important reasons why having an e-commerce pricing strategy is crucial to your business’s overall success:
According to research, 74% of shoppers conduct web searches to compare product prices across various merchants.
What does this mean?
It means that you cannot haphazardly assign prices. If you set your price too high, you’ll lose customers. If you set your price too low, you might make customers suspicious. As a result, you must ensure that your pricing strategy establishes reasonable and credible pricing that’s in line with the market average.
A common mistake is disregarding cost considerations when formulating an e-commerce pricing strategy.
How so?
The first step toward figuring out the right price for your product is getting a grip on cost considerations. For example, your product costs you $10. However, your competitors sell below $10.
You choose to match your competitors’ pricing to keep up. In doing so, you’re actually losing money on the product. Therefore, cost considerations play a key role in establishing your e-commerce pricing strategies.
At the end of the day, a product’s perceived value influences an e-commerce pricing strategy. In short, a product is only worth what customers are willing to pay.
If customers’ price points fall below your cost considerations, you might be better off switching products. In contrast, you might be pleasantly surprised to find customers willing to pay far more than your overall cost.
When creating e-commerce pricing strategies, and in particular, Shopify pricing strategies, there are several key elements you must take into consideration. Failing to do so may render your e-commerce pricing strategies lopsided. In other words, they won’t fully address your customers’ needs and desires based on your products’ perceived value.
Let’s take a look at five key elements to consider when creating your business’s e-commerce pricing strategies:
Factors such as age, income, and socioeconomic status determine how much you can charge for a product. For instance, a mobile phone priced in the thousands may become prohibitive for a younger customer demographic. In contrast, affordable clothing brands may not resonate quite well with older, wealthier customers.
Your e-commerce pricing strategies must communicate your brand’s unique value proposition. Pricing your products comparatively low to competitors may undercut value. In contrast, pricing them too high may build unrealistic expectations.
For example, luxury items provide a status that no other product can deliver. The same goes for highly functional products. A product that solves a significant problem can become quite expensive.
Highly competitive products are often the hardest to price. These products generally have razor-thin margins or may even become loss leaders. Think of fast-food restaurants. There are thousands of them. As a result, burger places generally have the same ballpark pricing strategies.
Undoubtedly, supply and demand play a huge role in determining overall e-commerce pricing strategies. In short, customers are willing to pay more when a product is scarce. Typically, supply and demand play a key role in determining overall price action.
Some products are purely the result of great marketing. Building hype around a product can artificially drive the price up. Thus, hype can become a powerful tool in creating e-commerce pricing strategies.
Don’t underestimate the power of marketing. Clever marketing can do wonders for your e-commerce pricing strategies. Nevertheless, please remember that hype must be justified. Otherwise, a brand’s reputation may suffer when customers realize the products don’t live up to their hype.
Now that we have covered all the bases regarding e-commerce pricing strategies, let’s discuss the twelve best pricing strategies you can implement today.
We have listed cost-plus pricing first as it is generally the most straightforward e-commerce pricing strategy. In short, cost-plus pricing takes a product’s cost (purchase price, shipping, handling, warehousing) and adds to a profit margin. Profit margins can vary according to various factors such as management’s expectations, competition, and the company’s financials.
For instance, a product’s total cost is $1. After researching the market, management feels that a 20% profit margin makes sense. The product’s retail price is now $1.20.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
On the whole, this e-commerce pricing strategy is very good for small businesses. Cost-plus pricing is a great way for newcomers to get a grip on managing their business’s e-commerce pricing strategies.
Competitor pricing essentially uses average market prices to set your product’s prices. The easiest way is to copy your competitor’s prices merely. However, this approach may not work if your costs are too high compared to your competitors. For instance, a small grocery store may have higher overhead costs compared to a large national supermarket chain.
Nevertheless, competitor pricing is an easy way to set up an e-commerce pricing strategy, particularly when introducing new brands or products into your specific market niche.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
This e-commerce pricing strategy works well overall. Please remember you must stay on top of market fluctuations and your competition’s moves. Therefore, constant market research is necessary to prevent becoming undercut by the competition.
In essence, value-based pricing hinges on how much the market will bear. In other words, your e-commerce pricing strategies are based on how much customers are prepared to pay for your products.
Brands that use this e-commerce pricing strategy must offer the best possible products at the highest possible quality for the products’ market segment and price point.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
This e-commerce pricing strategy is ideal for high-end or luxury items. Also, it works well for your brand’s best products. However, you must be aware of your customers’ value perception. If it falls, your products’ sales may suffer as a result.
Generally speaking, price skimming consists of charging the highest possible price when a product is new and then decreasing it over time. This e-commerce pricing strategy works for brand-new products that capitalize on novelty or hype.
For example, mobile phones were extremely expensive when they first arrived on the market. Over time, their prices have come down considerably.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
Overall, price skimming works very well with seasonal items. For instance, retailers sell winter clothes at full price during the winter. Then, they slash prices during the summer. As a result, some consumers may delay their purchase decision until the off-season.
Loss leaders have become increasingly popular over the last few years. In short, loss leaders are “cheap” items that retailers use to entice customers to visit their shops. Once there, the brand can entice customers to purchase other items at regular prices.
The classic example is Costco’s rotisserie chicken. This product is a loss leader as it does not generate the brand any profit. However, this product is the bait that lures customers into the store.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
Using loss leaders is a great way to get the ball rolling. So please ensure your loss leaders are items people want or need to purchase.
As the name suggests, dynamic pricing constantly changes pricing patterns according to several factors such as customer demand, time of day, season, or supply. When thinking about dynamic pricing, think about airlines.
Flight costs depend on the destination, time, number of visitors, or available number of seats. Airlines’ algorithms hike flight prices by detecting a high number of visitors searching for a specific flight.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
Dynamic pricing is a great strategy for high-demand items. Nevertheless, be careful with significant fluctuations. You may raise your customers’ suspicions.
Premium pricing is a straightforward e-commerce pricing strategy. Your brand often charges the highest possible price without considering how much the market will bear. This e-commerce pricing strategy is a staple of the luxury world.
Customers know they are getting a high-quality item with a significant “status” attached. This approach works well for jewelry, designer clothing, shoes, high-end sports cars, or other top products.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
If you’re targeting the most affluent shoppers in your respective market, premium pricing will help you get their attention. Please remember, though, that your products must deliver on expectations.
Anchoring prices or anchor prices give customers a reference or comparison price. This reference point serves to show customers the deal they are getting. A common practice is to show “was $10, now $5.”
This e-commerce pricing strategy utilizes a psychological device that allows customers to visualize how good a deal they’re getting. This approach works very well when running discounts and special offers.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
Anchoring prices works very well for sales and special offers. This e-commerce pricing strategy works very well if you set prices that don’t change frequently.
Brands often use introductory pricing for new products. This e-commerce pricing strategy offers new products at a special low introductory price. This strategy is also used by tech companies and subscription services offering free trials to new customers.
The aim is to entice customers to purchase now before the product’s price goes up to the full retail price. In general, the price never goes up unless the product is extremely successful.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
Introductory pricing works when products become popular. The best approach is to increase prices as far as the market will bear gradually.
Bundle pricing is a highly effective e-commerce pricing strategy. In short, bundle pricing means purchasing more than one item reduces a product’s price per unit.
For instance, one t-shirt costs $10. If a customer purchases three, they pay $15. This approach works very well with virtually any type of product.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
Bundle pricing works very well for virtually any kind of product. However, you must ensure that bundles don’t erode your profit margins.
Discount pricing is a highly effective tool when looking to spur slowing sales. Brands use this e-commerce pricing strategy when looking to clear excess stock or jumpstart sales.
Discounts work very well in percentage or dollar terms. However, it’s essential to avoid overdoing discounts. Customers must feel they’re getting a great deal. Thus, discounts should be used sparingly.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
Discounts in special events such as flash sales can be a highly effective way to boost your brand’s sales and generate buzz. However, discounts may be used strategically. Overdoing them may eventually cause customers to lose interest.
Psychological pricing is an e-commerce pricing strategy that uses psychological devices to help entice customers to purchase. A classic example is to end prices in nines. After all, paying $10 is not the same as $9.95.
Also, retailers generally avoid using unusual prices such as $17.31 or $6.70. Giving customers easy, round numbers helps them visualize pricing, particularly when offering discounts.
Psychological pricing works very well when buying in bulk. For instance, buying one pound of apples costs $1. However, buying five pounds of apples costs $3. It is clear that buying a larger amount makes you a better deal.
Let’s take a look at the pros and cons of the e-commerce pricing strategy:
Pros:
Cons:
Using psychological pricing in bulk pricing strategies can be a great way to entice your customers to buy more. This approach is great when you have items that customers get more utility the more they consume them.
Regardless of how you choose to price your products, PickyStory can help you generate a higher average order value (AOV) and overall revenue from your online store.
With PickyStory, e-commerce merchants can create product bundles and deals, with different pricing and discount rules. Deals can be displayed throughout your store, at key moments in your buyer’s journey.
PickyStory allows you to utilize the best e-commerce pricing strategies for your online e-commerce site. From there, you can use PickyStory to combine great products and Shopify pricing strategies to make the most of your overall sales strategies.
PickyStory helps e-commerce merchants to collect hidden revenue by selling products together. PickyStory offers a variety of deals like Bundle Products, Combo Products, Bundle Builder, Kits, Looks, and Coupons.
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